US GAAP PERFORMANCE OF COMPANHIA VALE DO RIO DOCE IN THE THIRD QUARTER OF Q 03

Transcription

1 BOVESPA: VALE3, VALE5 NYSE: RIO, RIOPR LATIBEX: XVALO, XVALP PERFORMANCE OF COMPANHIA VALE DO RIO DOCE IN THE THIRD QUARTER OF 2003 The financial and operational information contained in this press release, except whether otherwise indicated, is based on consolidated figures, according to generally accepted accounting principles in the United States of America ( US GAAP ). This information, with the exception of that referring to investment and market behavior, is based on the quarterly financial statements, which have been reviewed by independent auditors. The main subsidiaries of CVRD which form part of these consolidated figures are: RDM, RDME, RDMN, Urucum Mineração, Caemi, Pará Pigmentos, Docenave, Ferteco, Ferrovia Centro- Atlântica (FCA), Aluvale, Alunorte, Florestas Rio Doce, Celmar, Rio Doce Europa, Itaco, CVRD Overseas e Rio Doce Finance International. rio@cvrd.com.br Departamento de Relações com Investidores Roberto Castello Branco Rafael Campos Barbara Geluda Daniela Tinoco Eduardo Mello Franco Rafael Azevedo Tel: (5521) Rio de Janeiro, November 12, 2003 Companhia Vale do Rio Doce (CVRD) has reported net earnings of US$ 468 million for the third quarter of 2003 (3Q03), corresponding to earnings per share of US$ Net earnings for the first nine months of 2003 amounted to US$ billion, the equivalent of US$ 3.33 per share, being almost the same as the record earnings of US$ billion obtained during the whole year of Operational ROE (1), as measured by the ratio between adjusted EBIT (2) (earnings before interest expenses and taxes)/shareholders equity, amounted to 43.2% on an annualized basis, compared to 34.0% in the previous quarter. Quarterly records were obtained for revenue and cash generation, alumina and kaolin sales, and logistics services. The good results obtained by CVRD were due to the favourable conditions in the markets in which it operates, and particularly the quality of business strategy execution, consistent with the aim of maximizing value over the long term. Record revenues Gross operational revenues in 3Q03 amounted to a record US$ billion, 21.7% higher than that obtained in 2Q03 and an increase of 30.4% on 3Q02. In the first nine months of 2003, accumulated gross revenues amounted to US$ billion, an increase of 21.2% in comparison to that generated in the same period last year. Exports CVRD s consolidated export revenues, in accordance with BR GAAP (generally accepted accounting principles in Brazil), amounted to US$ 994 million in 3Q03, 1

2 an increase of 5.0% on the previous quarter figure of US$ 947 million, and 27.4% higher than the US$ 780 million reported in 3Q02. Export revenues accumulated to the end of September 2003 amounted to US$ billion, compared with US$ billion in the same period a year earlier. CVRD s net consolidated exports (exports minus imports) amounted to US$ billion in the period January/September 2003, representing 13.4% of Brazil's trade surplus of US$ billion. Record cash generation Cash generation, as measured by EBITDA (3) (earnings before interest, tax, depreciation and amortization) amounted to US$630 million, an increase of 28.6% on 2Q03 and 21.2% higher than in 3Q02, hence constituting a quarterly record. Accumulated adjusted EBITDA in the first nine months of 2003 amounted to US$ billion, an increase of 16.4% compared to the same period in Adjusted EBITDA margin (4), which is the ratio between adjusted EBITDA and net revenues, amounted to 44.0%, higher than the 41.9% figure recorded in 2Q03, but lower than the 47.4% reported in 3Q02. Sales Shipments of iron ore and pellets amounted to million tons, increase of 12.3% on the previous quarter and of 10.0% on 3Q02. Up to the end of September, sales of these products amounted to million tons compared to million tons in the first nine months of The consolidation of Caemi added million tons of iron ore to sales in 3Q03. If this effect were to be disregarded from sale shipment figures, sales would have amounted to million tons, the second highest quarterly volume in the Company s history. Alumina sales set new records, amounting to 747,000 tons, an increase of 23.7% compared to 2Q03 and up 114.7% on 3Q02. Shipments of primary aluminum, corresponding to CVRD's take from Albras, amounted to 54,000 tons, compared to 51,000 tons in 2Q03 and 49,000 tons in 3Q02. Kaolin sales reached the quarterly record of 182,000 tons in 3Q03. In the first nine months of 2003, shipments of this industrial mineral reached 374,000 tons vis-à-vis 235,000 tons in the same period of General cargo transported (cargo other than iron ore and pellets) for customers on the Vitória a Minas (EFVM), Carajás (EFC), and Centro-Atlântica (FCA) railroads, beat the record set in the previous quarter, with billion net ton kilometers (ntk). This represented an increase of 6.8% and 10.9%, on 2Q03 and 3Q02, respectively. Investments In the first nine months of 2003, CVRD invested US$ billion. Of this total, US$ million was spent on production capacity growth (growth capex), US$ million was allocated to maintenance (stay-in-business capex) and US$ 502 million was dedicated to acquisitions. Dividends On October 31, the Company distributed two tranches of dividends to its shareholders. 2

3 The first tranche, of R$ 1.48 per share, corresponded to the second instalment of the minimum dividend announced on January 30 this year. The second tranche, of R$ 1.94 per share, refers to the additional dividend approved by CVRD's Board of Directors on August 27. Therefore, in 2003, the first year in which the new Dividend Policy, approved on November 13, 2002, was implemented, the Company paid interest on shareholder s equity of R$ 5.04 per share, amounting to a total of R$ million. Converted into US$, the total dividend distributed in 2003 was US$ 675 million, being equivalent to US$ 1.75 per share, having increased 12.1% vis-à-vis In the 12 months to the end of October, the estimated dividend yield in US dollars was 5.4% for common shareholders and 6.1% for preferred shareholders. Financial statements Starting in September 2003, a number of companies were consolidated into CVRD's financial statements in US GAAP: Caemi and FCA. In this quarter, therefore, this consolidation refers only to the month of September. In Caemi s financial statements, the following companies have been consolidated: Cadam, a producer of kaolin, and MBR Minerações Brasileiras Reunidas, a producer of iron ore. The results of MRS Logística affect the shareholder participation line of Caemi and also that of CVRD. Beginning in 2002, according to the rule established by the Statement of Financial Accounting Standard 142 (SFAS 142), the company has carried out an impairment test on the premia paid for assets with the aim of verifying the feasibility of their recovery, having chosen the month of September of each year as the period to carry out this procedure. This test consists of determining a fair value for each investment and comparing to the value booked in the accounts of CVRD. In 2003, the impairment test for each of the Company s assets booked with goodwill revealed that there is no need for any asset write-down. SELECTED FINANCIAL INDICATORS 3Q 02 (A) 2Q 03 (B) (C) % (C/A) % (C/B) Gross Revenues 1,137 1,219 1, Gross Margin (%) Adjusted EBITDA Adjusted EBITDA margin (%) Adjusted EBIT Adjusted EBIT Margin (%) Net Earnings (150) Nm 2.6 Net Margin (%) (13.7) Total Debt/ Adjusted LTM EBITDA Annualized Operational ROE (%) (*) Investments (**) (*) Adjusted EBIT/net worth (**) including acquisitions RELEVANT EVENTS In recent months, a number of initiatives have been concluded whose principal aim is to adhere to the strategic focus of the Company and to help increase transparency. 3

4 Acquisitions On September 2, the Company completed the purchase of 50% of the ordinary shares and 40% of the preferred shares of Caemi Mineração e Metalurgia S.A. (Caemi) for US$ million, now having 60.2% of the total capital of this company and all the ordinary shares. Restructuring of logistics assets With the authorization granted by the Brazilian regulatory agency for the transportation sector (ANTT), a capital increase of FCA was carried out. CVRD fully subscribed the capital increase, for a total of R$ billion, of which R$ million corresponded to the conversion of advance payments for future capital increases already made, and the remaining R$ million to be paid in 4 cash instalments, of which three have already been made. The last instalment of R$ 61.5 million will be paid in December As a consequence, CVRD became the controlling shareholder of this railroad company, with 99.99% of its common shares and 99.99% of its total capital. FCA will now be fully integrated into CVRD's logistics strategy, thereby making investment in the railroad possible, in order to enlarge and improve its general cargo transportation capacity for the Company s clients. On November 7, 2003, also upon receiving the authorization from ANTT, CVRD divested its stakes in Companhia Ferroviária do Nordeste (CFN) and Sepetiba Tecon. Simplification of operational structure CVRD has merged Ferteco Mineração S.A. into the main Parent Company, taking over the management of Córrego do Feijão and Fábrica iron ore mines, as well as of the Fábrica pellet plant, located in the Iron Quadrangle, in the state of Minas Gerais. This event did not alter the Company's financial statements in US GAAP. CVRD has also absorbed Celmar S.A into the parent company, its assets being transferred to Ferro Gusa Carajás S.A., a joint venture created with Nucor for the production of pig iron in the north of Brazil. Therefore, Celmar S.A. ceased to exist. Starting in January 2004, CVRD's manganese and ferro-alloys operations will be conducted via four wholly-owned subsidiaries: Rio Doce Manganês (Sibra s new name since 15 October 2003), Urucum Mineração, Rio Doce Manganese Norway and Rio Doce Manganèse Europe. Divestitures On August 15, CVRD finalized the sale of the assets of the gold mine Fazenda Brasileiro. The proceeds from this sale, which amounted to US$ 21 million, were accounted for in this quarter under the item other operational revenues / expenses. On October 24, the company sold its 11.1% stake in Fertilizantes Fosfatados S.A. Fosfértil for R$ 240 million. The R$ 115 million accounting gain from this transaction will be added to the result in 4Q03. 4

5 BUSINESS OUTLOOK Global production of crude steel, according to the International Iron and Steel Institute (IISI), grew 7.1% in the first nine months of 2003, compared to the same period last year, hence registering a slowdown in relation to the first six months of 2003, when production expanded 8.2% year-on-year. This was due to production cutbacks in 3Q03 in the European Union, particularly in Germany, France and Spain, as well as in the US, in reaction to the lackluster macroeconomic performance in the first half of the year. The driving force behind the global expansion of crude steel production, which according to our estimates is likely to reach 960 million tons this year, compared to 903 million tons in 2002, is China, whose steel production has increased 21.6% this year to the end of September. In the last 60 months up to the end of September 2003, Chinese steel production has grown at an average annual rate of 15%, while in the rest of the world steel production has expanded at an annual rate of 2.6%. Consistent with its current stage of economic development, steel consumption in China is growing even more rapidly and CRU expects China s imports to exceed 40 million tons in 2003, compared to 29 million last year. The increase in China's overseas purchases of steel influences rising production in certain Asian countries, Japan in particular, whose steel industry has grown 3.5% this year. The IISI s most conservative scenario for the medium term indicates Chinese steel consumption should reach 330 million tons by 2007, with an annual average growth of 9.3% between 2002 and 2007, compared to 15.3% between 1997 and According to the same source, global consumption will grow until 2007 at an average annual rate of 3.6%, the same rate as that registered in the period 1997/2002. The strong Chinese demand is having a positive impact on steel prices, with the CRU Steel Price Index (CRUspi) returning to its upward cycle since June. Between December 2001 and October 2003, CRUspi increased by 45.4%. Another important implication is the substantial increase in demand for iron ore, with Chinese imports during the period January-September 2003 totaling 110 million tons, almost the same volume imported during the whole of last year, which amounted to million tons. Compared with the same period in 2002, Chinese imports of iron ore were up 33.1%. It is estimated that Chinese imports of iron ore will increase by approximately 35 million tons in 2003, with total imports into Asia rising by 40 million tons. Japan imported 98.8 million tons of iron ore in the first nine months of 2003, 3.2% more than in the same period last year. It is likely that the global economy in 3Q03 registered its highest rate of growth since the stock market bubble burst in the US, in 1Q00. The USA, whose GDP grew by an annualized rate of 7.2% in 3Q03, extraordinarily high for a developed economy, and Asia, where China s GDP grew by an annualized 9.1% in 3Q03, led the acceleration in global growth. At the same time, leading indicators of economic activity are signaling the start of a synchronized recovery in the global economy. In fact, the strongest signals for future growth are coming not only from the US, but also Japan, Southeast Asia, Latin America and even the European Union, where GDP growth this year is likely to be very modest, below 1%. After almost three years of below long term trend 5

6 annual growth of 3.6%, the global economy seems likely to resume its normal expansion rate. The change in the global economic cycle has been adding more consistency to the demand for ores and metals, whose pattern, although favorable, has been relying almost exclusively on the extraordinary expansion in China. Metal prices, already influenced by the weakness in the US dollar, reacted positively to the change in expectations for global GDP growth. The price of copper, for example, is now fluctuating in the range of US$ 0.90c a pound, having reached at the end of October 2003 its highest level since October 1997, while the prices of primary aluminum, of approximately US$ 1,500 per ton, even in the face of relatively high stock levels in the industry, are among its highest since May The combination of dramatic growth in Chinese demand, now leveraged by the prospect of a synchronized recovery in the global economy, and the restricted growth in the supply of ores and metals in the last few years - the industry reacted to the financial crisis in Southeast Asia in 1997 by reducing investments in capacity expansions - have created imbalances in the markets of certain products, which, despite the expansion projects currently under development, are likely to persist for at least another two years. CVRD estimates that seaborne trade of iron ore will amount to 545 million tons in 2004, compared to 515 million tons this year, with more than 80% of this growth due to the increasing amount of Chinese purchases overseas. With the extra capacity at Carajás set to come on stream in 2004, ahead of schedule, pushing production up to 70 million tons a year, the enlargement of the Maritime Terminal at Ponta da Madeira to a capacity of 74 million tons a year and the small increase in capacity in the Southern System (3 million tons a year), the Company should benefit to a greater extent from the pick-up in demand. The dynamics of price elasticity is likely to gradually correct the excessive increase in freight rates, which has been caused by the considerable expansion in seaborne iron ore trade - evaluated at approximately 65 million tons in 2002/2003. China has doubled its average monthly imports from 6 million tons in 2001 to 12 million tons in 2003, while at the same time, investment in the construction of new Capesize vessels has not kept pace with this trade expansion. The enlargement of port capacity in Brazil, Australia and China, to reduce shipwaiting time, should in the short-term help to increase the effective supply of maritime transportation. Furthermore, according to Clarkson Research Studies, in 2004, shipyards will place an extra 5.6 million deadweight tons of shipping capacity in the marketplace, the equivalent of 35 Capesize vessels, representing an increase of approximately 6% in the global fleet, which will also help to ease the current imbalance between supply and demand for transoceanic transportation. The reaction to the increase in shipping supply will be more significant in 2006 and 2007, bearing in mind the length of time between orders being placed and deliveries being met. Notwithstanding the sharp rise in freight prices on the spot market, with a widening of the spread between the Brasil/Asia Australia/Asia rates, and the probable slowdown in Chinese GDP growth to around 7% in the next few quarters, demand for CVRD's iron ore will continue to be very strong. This is because of the expansion plans for the Chinese steel industry the Chinese Iron and Steel Association recently estimated that Chinese production capacity will expand by 120 million tons between the end of 2003 and 2005 and also because of the Company's position as a supplier of high content ore with low levels of impurities, important factors for increasing productivity and improving the quality of steel products. Furthermore, the long-term contracts with its Chinese clients permit 6

7 CVRD to make an effective contribution in optimizing the value chain for steel production. In the case of alumina, spot prices have remained at around US$ 300 per ton FOB, approximately 20% of the current primary aluminum price on the LME, reflecting the strong demand pressure from China. In the first nine months of this year, Chinese imports amounted to 4.24 million tons, an increase of 32.3% in relation to the same period in We expect that the market shortages will continue during 2004 and 2005, which will mean that prices will remain high for many months, in contrast to what occurred in 1995 and 1999/2000, when the high prices seen in alumina saw a rapid reversal. Spot market prices are influencing prices in short and long-term contracts. This benefits Alunorte, a subsidiary of CVRD, which is signing contracts to absorb its additional production capacity of 1.8 million tons a year, from the construction of stages 4 and 5, which are due to come into service in The recent increase in the price of primary aluminum on the LME has had a positive effect on CVRD's alumina revenues, whose contracts are indexed to metal prices. This situation benefits the sales of Albras, whose production, due to the debottleneckings, will amount to 430,000 tons in 2003, rising to 450,000 tons in However, depending on the recovery in the global economy, it is estimated that in 2004 there will be an excess supply situation in the aluminum market, in relation to global consumption, which will tend to limit the trend of recent price increases. Stocks of copper have been falling, due to the slow expansion in the supply of copper concentrate and the sharp increase in Chinese consumption. Moreover, it has been estimated that this shortage will continue next year as a result of expected growth in demand. Despite the fact that the increase in the metal price tends to stimulate expansion in the supply of copper concentrate, no downward pressure is expected on prices for this product, given the continued level of excess demand. This scenario is therefore positive for the sales outlook of Sossego, which will be running at full production capacity in the middle of 2004, at an annual production rate of 470,000 tons of concentrate a year. SALES VOLUME AND REVENUES Shipments of iron ore and pellets in 3Q03 amounted to million tons, compared to million tons in 3Q02, and million tons in 2Q03, an increase of 10.0% and 12.3%, respectively. The consolidation of Caemi added million tons of iron ore to the shipment figures in 3Q03. In the first nine months of this year, CVRD's iron ore and pellet shipments amounted to million tons, exceeding by million tons the shipments recorded in the same period in The shipments of Caemi, carried out by a subsidiary MBR, in the first nine months of 2003, amounted to million tons, compared to million tons in the same period in Approximately 83% of Caemi s sales were directed to the export market. China is Caemi s main market, accounting for 26% of Caemi s iron ore shipments (7.2 million tons). Pellet sales amounted to million tons in 3Q03, representing an increase of 13.0% in comparison to 3Q02 and up 5.8% in relation to 2Q03. Starting in 3Q03, the São Luis pellet plant began operating at full capacity 6 million tons a year all of its production being sold to the export market. Therefore, in addition to a 7

8 higher production capacity, CVRD now has more flexibility in the supply of pellets for its clients, via the Tubarão complex in the Southeast of the country, via São Luís in the State of Maranhão, at Ponta da Madeira, and via the Fabrica plant in the State of Minas Gerais (this last one is more focused on the domestic market). To meet its commitments to clients, in view of the excess demand prevailing in 3Q03 in global markets, CVRD bought 2.1 million tons of iron ore from third parties, bringing the total amount of iron ore bought from small mining companies in the first nine months of 2003 to 7.2 million tons, the equivalent of 6.3% of the million tons sold by CVRD in this period. Another effect of excess global demand has materialized in the form of demurrage expenses, which amounted to US$ 8 million in 3Q03, compared to US$ 12 million in 2Q03. Expenses in this area amounted to US$ 29 million in the first nine months of this year, up 81.3% compared to the US$ 16 million incurred in the first nine months of With Pier 3 entering into operation at the Ponta da Madeira Marine Terminal, and the investments that have been made in the Port of Tubarão to speed up shiploading, these costs are expected to fall in Despite their increase, demurrage expenses accounted for only 1.4% of COGS in the first nine months of CVRD s iron ore exports up to the end of September 2003 (excluding Caemi) amounted to 92.8 million tons, representing 72.9% of total sales. China was the Company's main market with 19.3 million tons, representing 20.8% of the total, which in turn represented 18% of the total imports of that country in the period January/September of this year. Sales to the European Union amounted to 33.5 million tons, Germany leading with 13.8 million tons, followed by France with 6.2 million tons and Belgium, with 4.0 million tons. Japan bought 12.2 million tons, South Korea, 5.0 million tons, Argentina 3.3 million tons and the USA, 2.8 million tons. VOLUME SOLD - IRON ORE AND PELLETS 000 tons 3Q02 % 2Q03 % 3Q03 % Iron ore 37, % 36, % 41, % Pellets 4, % 5, % 5, % Total 42, % 41, % 46, % 8

9 IRON ORE AND PELLETS EXPORTS* - 9M03 million tons % Asia China Japan South Korea Bahrain Taiwan Others European Union Germany France Belgium Italy Spain United Kingdom Holland United States Others Total * Doesn t consider exports made by Caemi (MBR). The growth in global steel production has had a positive influence on demand for manganese and ferro-alloys. CVRD's sales of manganese ore in 3Q03 amounted to 238,000 tons, compared to 234,000 tons in 2Q03 and 213,000 tons in 3Q02. In the first nine months of 2003, total sales amounted to 678,000 tons, up 25.1% on the same period last year, when 542,000 tons were sold. Beginning in 3Q03, when ferro-alloy sales amounted to 134,000 tons compared to 103,000 tons in the previous quarter, RDMN began to operate one of its two furnaces, producing carbon steel alloys (FeAcMn) and silicon manganese alloys (FeSiMn). Given the expansion in alumina production, with the completion of stage 3 at Alunorte in March 2003, alumina sales continue to grow as well as benefit from the new market price scenario. In 3Q03, the Company sold 747,000 tons, an increase of 23.7% on the previous quarter. In the first nine months of 2003, the Company sold million tons, an increase of 290% on the amount of 487,000 tons sold in the first three quarters of However, it should be noted that Alunorte was consolidated into CVRD's US GAAP financial statements only since 3Q02. Sales of primary aluminium have been increasing, amounting to 54,000 tons in 3Q03, compared to 51,000 tons sold in 2Q03 and 49,000 tons sold in 3Q02. This increase is a result of expanded capacity at Albras, which has increased from 406,000 tpa to 430,000 tpa in For 2004, due to the removal of a number of production bottlenecks in its plant, production capacity at Albras should increase to 450,000 tons of primary aluminium per year. With the strong demand coming from Brazil's agricultural sector, which has been seeing record harvests, potash sales increased to 198,000 tons, up 32.9% in comparison to 2Q03. The Taquari-Vassouras potash mine is currently operating at a capacity of 650,000 tpa, over its nominal capacity of 600,000 tpa. In the first three quarters of 2003, 505,000 tons of potash were sold, down 4.4% when compared to the first three quarters of 2002, during which 528,000 tons were shipped. This drop is due to the sales of existing inventories in With the capacity expansion in the Taquari-Vassouras mine from 600,000 tpa to 850,000 9

10 tpa, which should be completed in the middle of 2005, the Company will aim to cater to the excess demand existing in this market and benefit from the good growth potential of this business. Sales of gold fell to 14,211 ounces in 3Q03, well below the volume sold of 63,531 ounces in 3Q02. This reduction, already expected, was due to the exhaustion of the Igarapé Bahia gold mine and the sale of the Fazenda Brasileiro gold mine. As a result of these two events, the Company will only be selling gold as a by-product of copper production. Part of the mineral exploration budget is being invested in the search for new gold deposits, with the aim of resuming production of this precious metal in the future. Kaolin sales amounted to 182,000 tons, compared to 84,000 tons in 2Q03, an increase of 116.7%. The consolidation of Caemi, and its subsidiary kaolin producer CADAM, added 68,000 tons to sales in 3Q03. Disregarding the added sales from CADAM, total sales would have amounted to 114,000 tons, a quarterly record, with an increase of 35.7% in relation to 2Q03. In the first nine months of 2003, sales of this industrial mineral amounted to 374,000 tons, 59.2% higher than the 235,000 tons sold in the same period last year. Sales volume in 2003, disregarding the extra sales due to CADAM, should exceed 400,000 tons, reflecting the very positive outcome of the change in marketing policy, implemented in 2003 to take advantage of installed capacity at PPSA. VOLUME SOLD - ORES AND METALS 000 tons 3Q02 2Q03 3Q03 Gold (ounces) 63,531 19,773 14,211 Manganese Ferro-alloys Alumina Aluminum Bauxite Potash Kaolin General cargo transported also reached new records, billion ntk, an increase of 10.9% in relation to 3Q02 and up 6.8% compared to 2Q03. In the first nine months of 2003, EFVM, EFC and FCA transported billion ntk of general cargo, compared to billion in the same period last year, an increase of 6.5 %. The integration of CVRD's assets, the definition of a commercial policy, the launching of new services and investment in locomotives and railcars, are enabling the Company's logistics services to grow at rates well above Brazilian GDP growth. Freight handling for clients at CVRD's ports and maritime terminals amounted to million tons, up 16.0% in relation to 3Q02, and showing a slight drop of 1.7% compared to 2Q03. VOLUME SOLD LOGISTICS SERVICES 000 tons 3Q02 2Q03 3Q03 Railroads (million ntk) 6,647 6,900 7,371 Ports 5,835 6,889 6,772 10

11 The Company's gross operating revenues amounted to US$ billion in 3Q03, 30.4% higher than in 3Q02 and an increase of 21.7% on 2Q03. Comparing the revenue obtained in 3Q03, with the US$ billion obtained in 3Q02, an increase of US$ 346 million is observed, US$ 201 million of which is explained by price increases in iron ore, pellets, ferro-alloys, potash, aluminium, alumina and logistics services, and US$ 145 million is explained by growth in sales volume. 3Q03 revenues of US$ 701 million obtained from iron ore sales accounted for 47.3% of total sales, an increase of 32.3% in comparison to 3Q02, and up 18,2% on 2Q03. The average iron ore shipment price amounted to US$ per ton, up 5.4% on 2Q03 and an increase of 20.8% on 3Q02. Pellet sales generated revenues of US$ 205 million in 3Q % of total revenues representing an increase of 18.5% in relation to 3Q02 and up 30.6% compared to 2Q03. The average pellet price amounted to US$ per ton in 3Q03, compared to US$ in 2Q03. As a consequence of the retroactive impact of the price increases negotiated with CVRD's clients in May of this year, US$ 58 million was booked as part of sales revenue from iron ore and pellets in 3Q03 (which referred to the price increase on shipments made in the first half of the year). A further US$ 2 million remains to be booked in 4Q03. These adjustments do not include sales made by MBR. Service revenue from the operation of the 5 joint-venture pellet plants at Tubarão amounted to US$ 12 million, compared to US$ 10 million in 3Q02 and US$ 11 million in 2Q03. Revenue from the sales of manganese and ferro-alloys amounted to US$ 78 million in 3Q03, practically the same as the US$ 79 million reported in 2Q03. Manganese and ferro-alloy revenues accumulated in 2003 to the end of September amounted to US$ 227 million, compared to US$ 199 million in the same period a year earlier. Revenues from the sale of alumina amounted to US$ 149 million, compared to US$ 104 million in 2Q03 and US$ 64 million in 3Q02. In addition to the extra volume from the expansion at Alunorte, revenue growth also reflected an increase in the average shipment price, which stood at US$ per ton in 3Q03, compared to US$ in 3Q02. With the recovery in aluminium prices alumina contract prices are linked to the LME metal price and the actual renewal of alumina contracts in a much stronger price scenario than that in 2002, and with prices tending to stabilize at the current levels, growth in revenues and profitability can be expected. Revenues from the sales of primary aluminium amounted to US$ 81 million, compared to US$ 78 million in 2Q03 and US$ 73 million in 3Q02. In this case, the increase in revenues resulted, not only from an increase in volumes, but also due to an increase in average price: US$ 1, per ton in 3Q03, compared to US$ 1, in 2Q03 and US$ 1, in 3Q02. Logistics services generated gross revenues of US$ 159 million, representing 10.7% of total gross revenues in 3Q03. The transport of general cargo, which produced revenues of US$ 101 million, registered an increase of 53.0% in relation to 3Q02 s US$ 66 million and was 27.9% higher than 2Q03 s US$ 79 million. The main elements behind this increase were services provided to the steel industry, which accounted for 38.0% of the total, services to the agro-industry, which accounted for 31.9% of revenues (with particular emphasis on soy beans, sugar and alcohol), and inter-modal transport, with 3.1%. Despite the small proportion of logistics revenues represented by intermodal transport, which basically involves the transport of products from factories to large distribution canters, the growth rate in this segment has been extremely 11

12 high, having practically quadrupled between 3Q02 and 3Q03. Another important segment was the transport of building materials and forestry products. Port services generated revenues of US$ 40 million in 3Q03, compared to US$ 36 million in 3Q02 and to US$ 38 million in 2Q03. Maritime transport operations generated revenues of US$ 18 million in 3Q03, of which US$ 10 million came from container transport, amounting to 16,765 Teus. As part of its logistics services, CVRD operates a fleet of five ships, which transport containers between various ports along the Brazilian coast and going as far as Buenos Aires. Revenues from the sale of gold dropped from US$ 21 million in 3Q02 to US$ 7 million in 2Q03 and US$ 5 million in 3Q03. Potash sales remained stable in 3Q03, at US$ 28 million, in relation to 3Q02, with an average price of US$ per ton compared to US$ in 3Q02. In relation to 2Q03, revenues increased by 33.3%, due to the growth in volume sold. Sales to external markets accounted for 68% of the US$ billion total gross revenues obtained by the Company in the first nine months of Europe, with 30% and Asia with 23%, were its most important markets. China, as a result of the strong increase in iron ore purchases, became individually, after Brazil, CVRD's most important market, accounting for US$ 390 million, about 10% of total Company revenue. GROSS REVENUE BY PRODUCT 3Q02 % 2Q03 % 3Q03 % Iron Ore Pellet plant operation services Pellets Gold Logistics services Aluminum, alumina and bauxite Manganese and ferro-alloys Potash Kaolin Others Total 1, , , GROSS REVENUE BY DESTINATION 3Q02 % 2Q03 % 3Q03 % Domestic market External market , USA Europe Japan Asian, ex Japan Rest of the World Total 1, , , NET EARNINGS OF US$ 468 MILLION Net earnings in 3Q03 amounted to US$ 468 million, compared to the US$ 150 million loss recorded in 3Q02. In the first nine months of the year, the Company 12

13 obtained net earnings of US$ billion, much higher than the US$ 111 million reported in the same period in The growth in net revenues of US$ 334 million and the improvement of US$ 249 million in the result from shareholdings, had an important influence on the Company's performance in 3Q03, compared to 3Q02. In iron ore and pellets, the result from shareholdings showed an increase of US$ 144 million in 3Q03. Samarco had excellent performance in 3Q03, with sales volume of million tons of iron ore (569,000) and pellets (3.359 million), and net earnings of US$ 33 million. Its sales grew by 15% in the first nine months of 2003, in relation to the same period a year earlier, 35% of its shipments being sold to China, the company being the largest supplier of pellets in that market. In 3Q02, Caemi made a provision US$ 88 million, due to the restructuring of its affiliate Quebec Cartier Mining Company (QCM). Other companies, such as Samarco and Kobrasco, saw their results negatively affected by the depreciation of the Real against the US dollar in that quarter. The aluminum area increased its contribution to CVRD's earnings by US$ 58 million. In addition to the elimination of the negative effects from exchange rate volatility, which occurred in 3Q02, the operational performance of the companies improved substantially, with increased sales and prices thereafter. MRN shipped million tons of bauxite in 3Q03 compared to million tons in 3Q02, at an average price of US$ per ton compared to the previous US$ 18.46, and Albras sold 111,000 tons in 3Q03 compared to 104,000 tons in 3Q02, with prices increasing by 6%. MRN contributed to the quarter s earnings with US$ 11 million, Albras with US$ 14 million and Valesul with US$ 2 million. As a consequence of the good performance of the steel sector, with the increase in production, sales and prices, the result from shareholdings in affiliates improved, increasing from US$ 15 million in 3Q02 to US$ 26 million in 3Q03. Usiminas contributed with US$ 14 million and CST with US$ 14 million, while the CSI stake had a negative effect on CVRD s earnings, representing a loss of US$ 2 million, as a consequence of falling prices and a drop in production. RESULT FROM SHAREHOLDINGS 3Q02 2Q03 3Q03 Steel Aluminum and bauxite (31) Logistics (38) (72) (1) Pellets (18) Iron ore (94) 10 6 Others 6 (1) 5 Total (160) The financial result showed an improvement of US$ 82 million, principally due to the fact that in 3Q02 there were losses from interest-rate hedging with derivatives. In addition to the aforementioned factors, in 3Q02 the main determining factor behind the negative result was the appreciation of the US dollar in relation to the Real on CVRD's foreign currency denominated debt, which amounted to a loss of US$ 506 million, and which in 3Q03 was limited to US$ 57 million. The increase of US$ 258 million in the cost of goods sold (COGS) in 3Q03 which amounted to US$ 812 million, in comparison to the US$ 554 million in 3Q02, is 13

14 basically explained by: (i) the consolidation of the results from other CVRD companies in September 2003, which added US$ 55 million to COGS Caemi US$ 39 million and FCA US$ 16 million where the most important impact occurred in the item "contracted services" of US$ 28 million; (ii) an increase of US$ 76 million in material costs, due to provisions for repairs and an actual increase in production; and (iii), an increase of US$ 55 million with aluminum, alumina and bauxite purchases, along with sales volume growth and revenue growth for these products. COGS BREAKDOWN 3Q02 % 2Q03 % 3Q03 % Personnel Material Contracted Services Acquisition of Iron Ore and Pellets Acquisition of Other Products Depreciation and Exhaustion Energy Others Total CASH GENERATION In this quarter, the Company generated record adjusted EBITDA of US$ 630 million. This was an increase of 21.2% in relation to 3Q02 (US$ 520 million) and up 28.6% compared to 2Q03 (US$ 490 million). Adjusted EBITDA margin amounted to 44.0%, lower than the margin in 3Q02 (47.4%) but higher than that in 2Q03, of 41.9%. In the period from January to September 2003, adjusted EBITDA amounted to US$ billion, an increase of 16.4%, or US$ 220 million, in relation to the same period in In the last 12 months to September 2003, adjusted EBITDA amounted to US$ billion. Increase in adjusted EBITDA in relation to 3Q02 The principal reason for the increase in adjusted EBITDA in 3Q03 relative to 3Q02 was the growth of US$ 334 million in net operational revenues. Other factors also contributed favourably: (i) the increase in dividends received from subsidiaries and affiliates of around US$ 49 million, with a total US$ 66 million in 3Q03 compared to US$ 17 million in 3Q02; (ii) the US$ 21 million gain from the sale of the Fazenda Brasileiro gold mine, accounted for at the "other operational expenses/revenues" line. In 3Q03, CVRD received dividends from CST of US$ 30 million, US$ 14 million from Samarco, US$ 3 million from Usiminas, US$ 2 million from Fosfértil, and US$ 17 million from other companies. According to the Securities and Exchange Commission (SEC) guidelines regarding the reporting of non-gaap measurements, any event should not be considered as non-recurring if it is likely to be repeated during the next two years, or has already occurred within the previous two years. In this way, as CVRD has sold assets within the last two years, ships and forestry being examples, having in 4Q03 already sold a number of shareholdings - in CFN, Sepetiba Tecon and Fosfértil - 14

15 the US$ 21 million in proceeds derived from the sale of Fazenda Brasileiro was not discounted from adjusted EBITDA in 3Q03 as a non-recurring item. The consolidation of Caemi and FCA had a net positive effect of US$ 21 million on adjusted EBITDA in 3Q03, being US$ 27 million from Caemi and a negative figure of US$ 6 million from FCA. The ferrous mineral businesses contributed US$ 453 million to adjusted EBITDA, experiencing a reduction in their participation within the Company's adjusted EBITDA from 80.0% in 2Q03 to 71.9% in 3Q03. Logistics services generated adjusted EBITDA of US$ 53 million, showing a reduced participation within the Company s adjusted EBITDA from 11.8% in 2Q03, to 8.4% in 3Q03. The aluminum businesses, with US$ 65 million in adjusted EBITDA, accounted for 10.3% of the Company s adjusted EBITDA, almost double the figure of 5.5% recorded in 2Q03. QUARTERLY ADJUSTED EBITDA 3Q02 2Q03 3Q03 Net Operating Revenues 1,098 1,170 1,432 COGS (554) (670) (812) S,G &A (65) (45) (74) Research and Development (15) (12) (22) Other Operational Expenses (5) (55) (23) ADJUSTED EBIT Depreciation, Amortization & Exhaustion Dividends Received Adjustment for Non-recurring Items (asset impairment) ADJUSTED EBITDA ADJUSTED EBITDA BY BUSINESS AREA 3Q02 % 2Q03 % 3Q03 % Ferrous Minerals Non- Ferrous Minerals Logistics Aluminum Others Total DEBT CVRD's total debt as at September 30, 2003, amounted to US$ billion, an increase on its position at the end of 2Q03, when the figure stood at US$ billion. Part of this increase was due to the consolidation of Caemi (US$ 207 million) and FCA (US$ 132 million). The remaining US$ 683 million corresponds partially to a temporary increase in the Company's debt. This increase is transitory given that in 4Q03 scheduled debt repayments amount to approximately US$ 400 million, including in this total, the maturity of the CVRD 2003 bond, of US$ 200 million in face value, which falls due in December. 15

16 Net debt (5) as of September 30 amounted to US$ billion, given that cash and equivalents increased from US$ 966 million at the end of 2Q03 to US$ billion at the end of September. As a consequence of this temporary increase in debt levels, the leverage indicator Total Debt/ LTM adjusted EBITDA (6) increased from 1.74x to 2.15x. However, this ratio is distorted, because the numerator includes, for example, 100% Caemi s debt of US$ 207 million, while the denominator takes into account only one month of its cash generation, in other words, only US$ 27 million. Therefore, considering that Caemi has a degree of leverage slightly below that of CVRD, it is expected, all other things being equal, that this indicator will converge to the levels seen in 2Q03. The debt/firm value (7) ratio dropped slightly from 0.23 in 2Q03 to 0.22 in 3Q03. Interest coverage remained fairly constant, as the ratio of adjusted EBITDA /interest expenses (8), was 11.67x in 3Q03, compared to 11.95x in 2Q03. FINANCIAL EXPENSES Financial Expenses on: 2Q03 3Q03 Local Debt (4) (6) External Debt (35) (43) Debt with Related Parties (2) (5) Total Debt-related Financial Expenses (41) (54) Gross Interest on: 2Q03 3Q03 Tax and Labour Contingencies (6) (10) Tax on Financial Transactions (CPMF) (5) (6) Derivatives 4 2 Others (16) (15) Total Gross Interest (23) (29) Total (64) (83) The value of the guarantees granted to non-consolidated companies amounted to US$ 326 million at the end of September, of which US$ 278 million was denominated in US dollars and US$ 48 million denominated in Reais. US$ 291 million of these guarantees refer to obligations incurred by Albras. In the 12 months ending September 2003, Albras adjusted EBITDA amounted to US$ 226 million and its debt at the end of the same month amounted to US$ 387 million, representing, therefore, a Total Debt/ LTM adjusted EBITDA ratio of 1.7x, which is extremely comfortable. The value of guarantees fell by US$ 158 million in relation to those in 2Q03, given that US$ 135 million, which was related to FCA, is now consolidated in CVRD's financial statements. DEBT INDICATORS 3Q02 2Q03 3Q03 Gross Debt 3,579 3,282 4,304 Net Debt 2,177 2,316 2,964 Gross Debt / LTM adjusted EBITDA (x) Adjusted EBITDA / Interest Expenses (x) Gross Debt / Firm Value (x)

17 INVESTMENTS In the first nine months of 2003, CVRD s capital expenditure amounted to US$ billion. Of this total, US$ million was invested in the expansion of production capacity (growth capex), US$ million in maintenance (stay-inbusiness capex) and US$ 502 million in acquisitions. During 3Q03, CVRD invested a total of US$ million, of which US$ million referred to the acquisition of Caemi. In this quarter, US$ million was invested in projects. Most of this amount was allocated to the following investments; first, to the development of the Sossego copper project, which incurred expenditure of US$ million in the quarter; second, to increasing alumina production capacity, which accounted for US$ 26 million; third, to the expansion of the Taquari-Vassouras potash mine, accounting for US$ 8.6 million; fourth, to the purchase of locomotives and railcars, accounting for US$ 28.6 million. In addition, US$ 32.8 million was invested in projects related to the ferrous business in the Northern System and US$ 13.6 million in the Southern System. Expenditure on mineral exploration and technological research amounted to US$ 18.9 million. Expenditure on maintenance (stay-in-business capex) in 3Q03 amounted to US$ million, including capital injections of US$ 54.1 million for the financial restructuring of subsidiaries (FCA and PPSA) and US$ 9.1 million on information technology. 17

18 Area Ferrous Project Expansion of iron ore production capacity in the Northern System Pier III at the Marine Terminal of Ponta da Madeira (TMPM) Brucutu iron ore mine Southern System Nova Fábrica iron ore mine Southern System Conversion of RDMN Sossego Copper Mine Non Ferrous Expansion of the Taquari- Vassouras Potash Mine Logistics Purchase of Locomotives and Railcars Praia Mole Marine Terminal (phases I & II) Main ongoing projects: Investment realized 1Q03 2Q03 3Q03 9M03 Status It is expected that the Northern System will be operating at a rate of 70 million tons per year in 1Q04, consequently being some 12 months ahead of schedule Completion scheduled for February The implementation of this project is proceeding on schedule with capex estimated at US$ 33.3 million. Pier III will have a shipment loading capacity of 18 million tons a year, increasing the capacity of TMPM to 74 million tons a year Completion of first phase scheduled for 2006, when the mine will have a production capacity of 12 million tons per year. The work is proceeding according to schedule. Total investment is budgeted at US$ million % of the investment has already been realised and work is proceeding according to schedule. Fábrica Nova should reach nominal production capacity of 10 million tons a year in 2005, reaching 15 million tons in Total capex is estimated at US$ 84.4 million, with investment in 2003 budgeted at US$ 39.6 million. The project is on schedule and within budget Total investment in the conversion of the furnaces at RDMN is estimated at US$ 15 million and, after completion, the plant will have a production capacity of 110,000 tons of manganese ferro-alloys. The first furnace is already in operation. The conversion of the second is expected for completion by the end of % of the total investment for the project has already been carried out, which represents completion of around 90% of the work. Commissioning is scheduled for 1Q04., production ramp up for 2Q04, and start of commercial operations for July Completion scheduled for 1H05. 38% of the total investment in the project has already been realised. 42% of the work has already been completed. After the expansion, the mine will have a capacity increase of 850,000 tons a year Of the 2,010 railcars and 77 locomotives which will be purchased by the end of 2003, the company has already received 1,356 railcars and 66 locomotives. Part of this equipment will be allocated to the transport of general cargo and part for the transport of iron ore. 51% of the total investment, estimated at US$ million has already been carried out Phase I was concluded in April After the completion of Phase II, scheduled for 2Q04, the shipment capacity of the terminal will be 14.5 million tons a year. Total investment is budgeted at US$ 20.9 million. Paragominas The start-up of the Paragmonias bauxite mine is scheduled for 2006, with an initial production capacity of 4.5 million tons per year, with a total investment of US$ 271 million. Aluminium Alunorte stage 3 Alunorte stages 4 & Project concluded in April The project for the construction of modules 4 and 5 at Alunorte, which will add an additional 1.8 million tons to the plant capacity, began this quarter. This expansion is scheduled for completion in 2006, with total investment budgeted at approximately US$ 583 million. 18